Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly.
Registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member of FINRA, SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors Incorporated. A registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now, here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, it is the third Wednesday of June, so that means it is tax time, Andy.
Andy Fergurson:
Always tax time.
Nate Kreinbrink:
Well, we are going to talk taxes today on the third Wednesday.
Andy Fergurson:
Every time Wednesday is tax time.
Nate Kreinbrink:
You are correct. Again, hard to believe we are mid-June, just past it. I know we had a baseball game last night. And honestly, by the end of the game it felt more like a fall football game. That’s literally what the night felt like was a fall football game.
Andy Fergurson:
It’s been pretty cool at night and so all this rain is … Take the good with the bad, right? I’ll take the cool nights. I don’t like it when I’m sitting at a baseball game and sweating just dripping into my ear when it’s already dark.
Nate Kreinbrink:
That is true. It continues to switch and continues to change and we know what’s ahead. It is officially going to be summer, what, this weekend? I think is the Monday or something like that?
Andy Fergurson:
Yeah, I think the 20th is the solstice, or whatever.
Nate Kreinbrink:
So then we can officially get it and then hot humidity and all that fun will come. I’m sure we’ll get plenty of just enjoy this where it is. Again, talking taxes today, I know Andy always has this list as far as what he wants to do. I talked to him a little bit ago and he didn’t know what he was going to talk about and now he has five pages here. So we are going to try to condense this.
But again, when people look at this and you talk tax professionals, I mean, again, we talked as far as different times of the year, tax preparation versus tax planning and that’s kind of where we’re at right now is more into that planning stage. And again, preparing for the upcoming season with some of the changes that happened and then what are on the horizon.
Andy Fergurson:
Yeah. Everybody asked me, “What do you guys do when you’re not in tax season?” And the funny little quip is always, well, it’s always tax season. Taxes don’t ever take a break, but there’s a difference between the spring heavy rush tax season and the summertime.
We definitely work a lot less during this time of year, but there’s still things to do. We’ve got to do our research for changes in tax law. We’ve got to make sure we’re up-to-date on everything that’s moving. We do our continuing education requirements and things like that. And more than anything, what I do is a lot of planning.
We spend a lot of time talking about what do we need to prepare for, because the client’s life is changing or because the tax law is changing. Those two things keep us plenty busy to make sure that we get everything done. And like I said, it’s always tax season. So I’ve still got a list of returns on my desk. I’ve still got 50 returns or so that need to be done and I will put out a little public service announcement to anybody who’s still got a return to do, let’s get it done.
Although you’ve got a six-month extension, two of those months are gone at least. And so get that stuff finalized. You should have all your documents or you should have everything but one document. And if that’s the case, get that going because what tends to happen is people think they got six months. So at five months and 25 days they’re like, “Oh, I better get this done.” And if everybody does that, you’re going to be in the same problem, you’re going to end up late. So just get what you have to your preparer, let’s get it done.
Nate Kreinbrink:
Right. I think when you start looking at that, I mean the question as far as with that filing, the other part of it I think is, do I even have to file? And I know that’s a common thing. And again, when you’re working and you have wages and neglect a question or whatever, but again, there’s a lot of misconceptions I think out there where, again, people come in and just not knowing what they don’t know saying, “Hey, what age is it that I don’t have to file anymore?” Well, that’s not really true, but it depends. But I think that’s where I think a lot of those false information and, again, we need to make sure that we’re looking at things and then have the correct information.
Andy Fergurson:
Yeah. I see that in two different ends of the spectrum. So like you said, when you’re in your working years, of course you need to file. But then I have people come in with kids who have just started working and they say, “Does this kid need to file?” Or they come in at the end of their working career and they say, “What age do I have to stop filing?” And then it doesn’t really have anything to do with age. What it has to do with is income.
So if you have income that is taxable and it exceeds the standard deduction, then you need to file. Or if you have income that is subject to other tax like self-employment. So I have people who have income who are self-employed and maybe they have social security and they make $5,000 on the side doing some other business. Well, if you have $5,000 of business income or self-employed income, you’re not going to pay any income tax on that, but you may have to pay self-employment tax on that. And so those people have to file.
But the other consideration is you may not have tax, but if you’ve had withholding. I mean, if you’ve had withholding generally, you need to file. If they withheld from your social security, if they withheld from your IRA distributions, or if they withheld from your summertime job at the gas station, you probably need to file.
That’s the case in Iowa. In Illinois, that threshold’s even lower. It’s not the standard deduction. The threshold in Illinois is only like $2,000. So if you have income that exceeds that $2,000 that’s not exempt in Illinois, you probably need to file. It’s all about income, it has nothing to do with age.
Nate Kreinbrink:
Well, and I think too, and that’s something that you want to continue to monitor because again, as things change, I mean, if you had additional income and you were withholding from your IRA distributions because of that other income, if that other income stopped, well, your income on your tax return changed. So you may not need to withhold that money anymore because of that drop in income. And as Andy alluded to, again, when you’re paying that and you’re doing that withholding, you’re prepaying the tax.
Well, if you don’t have to file because your income is low enough, well, you’ve already prepaid that tax. If you want to get that prepayment tax back, your money back, you’ve got to file to do that. The IRS isn’t going to send you a nice little letter and saying, “Hey, we owe you this money back you need to file.” You’ve got to take the responsibility to file to get your own money back and then moving forward, which is part of that planning is we want to stop withholding so you don’t have to do that forward.
Andy Fergurson:
Get that money on your monthly paycheck instead of withholding it. You brought up a case study where someone was withholding, but then they were withholding on their IRA or their pension, but then their income dropped to a point where they didn’t have any taxable income and so they just stopped filing. Well, they’re still withholding. Like you said, we got to file and get that money back. And I tell people all the time, when the IRS owes you money, there’s no real deadline to file because they owe you, but there is if they owe you money. That deadline is three years from the day tax return was due.
I had another case study where a client contacted me and said, “Hey, I got my 2022 tax return ready for you so I’m going to bring it in for you to file.” Well, the 2022 tax return, they’re normally due a refund. Well, it was due in April of 2023, which was more than three years ago. And so they’re not going to get that refund because they waited too long. And so you’ve got that three-year window to get any refunds.
If you owe them money, you can always file late and pay them the penalty for not filing on time, but you just want to make sure that you’re not waiting too long to get those filed or you’re out of money. This case study that I’m thinking about, this person’s going to be out several thousand dollars that they would normally get in a refund just because they waited too long.
Nate Kreinbrink:
Right. Well, and I think too, I mean, as these things change, this is why I think it is important for these, I guess you would call it off season. I know you said on there that you work less. Well, you don’t work less, you work normal hours now.
Well, normally, I would make sure that you quantify that because again, this is such an important time and I know we’ve got a lot of joint clients that we work with as far as on our side with the money management and retirement income, you on the tax side. But again, those decisions are so intertwined and they change. I mean, with new tax laws, new deductions, new income, new whatever, we want to make sure that we’re looking at this from not just the decision today, but a decision five years from now, 10 years from now, 20 years from now.
And again, ultimately, what is their goal with the assets that they have? Is it strictly for them for retirement income? Is it, “Hey, I know I’m not going to ever spend this. This is going to the kids or going to a charity.” That dictates what we do from a planning standpoint throughout the life of those clients. And we want to make sure that when we do that, we know what the tax is going to be.
And I know again, our clients that we do, we usually have an end of the year meeting where I kind of joke with them that, “Hey, we’re doing the heavy lifting now.” So when you go in to do your tax return in March or April, you basically have the answers to the test because we did all the working prior to the end of the year to make sure we hit the deadline for Roth conversions and things like that.
Andy Fergurson:
Yeah. And you talked about the law changes and the client situation changes. Well, not only that, there’s things that we know are coming down the road. I mean, it may be that you know social security is going to hit on a certain day. You may know that there’s going to be some sort of inheritance that’s coming. You may know of an expense. You may know that a kid is coming out of college or coming off the payroll or getting married or whatever. There’s known things that are going to happen in the future as well and those may impact what we want to do this year.
I have another case where I’ve got a case who’s going to have a decent capital gain and so we know that there’s a big gain in 2026. So we want to pull certain levers to reduce other incomes as much as we can in 2026 to help get the best benefit out of that gain. And so there’s just all kinds of things that are moving all the time. I have people constantly that will ask me questions and they’ll say something to the effect of, “My neighbor or my coworker or my sister did this. Should I also do this?”
Well, the answer is, I don’t have any idea what your sister’s situation is, so I don’t know if that was what was best for her. What you need to do is set your planning and your strategy based on your situation. And don’t ever do anything because your neighbor did it or because your sister did it. So just something to consider. You want to make sure that you are making good choices based on your situation.
Nate Kreinbrink:
All great stuff. And again, you got questions, give us a call. I did want to mention that every month that NelsonCorp is featuring a new charity of the month. For the month of June, we are focusing on the Society of Saint Vincent de Paul. Again, this is Nate and Andy bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA, SIPC, Investment Advisor Representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.